MANAGING PARTNER SPECIAL ISSUE

Trends Report

Succession Planning Strategies

As the first wave of baby boomers begins retiring, the need for succession planning is increasingly critical to law firms. In terms of both management and client responsibilities, older partners have an obligation to the firm and their clients to begin transferring their responsibilities to younger partners before they retire or an unexpected event occurs.

Several years ago (in the October 2004 issue), this column discussed how law firms were starting to address the need for succession planning. This is a process that requires thought and care. So, given the unprecedented number of partners who are now entering their retirement years, it seems like an excellent time to revisit the topic.

Transitioning Client ResponsibilitiesThis is a sensitive issue for both the lawyer and the client, and several important points must be kept in mind. First, the future health of every firm depends, to a great degree, on keeping longtime clients after the responsible partners are unable to serve them due to age, retirement, disability or death. At the same time, clients develop unique, close relationships with their lawyers over the years and, in many cases, they've had little, if any, exposure to younger lawyers in the firm. Adding to the dilemma is that older partners often actively resist giving up the clients for whom they are responsible.

Of course, in some firms the senior partners are more forward-looking, and even before they approach retirement years, they already engage younger lawyers in working with their clients. If the clients feel comfortable with these younger lawyers, the senior partners often take the initiative and began transitioning the clients to them.

In other cases, however, older partners fail to look to the firm's future or to recognize clients' needs or desires. For example, in some instances, client personnel retire and are succeeded by younger personnel who want to work with a lawyer closer to their own age. If the older partner fails to act accordingly, the client may well move to another firm. In other instances, older partners hoard clients and never involve younger lawyers in working with them. Then, when the partner retires (or is suddenly taken ill or worse), the client-lacking an active tie to the firm- simply takes its business elsewhere. If the partner has a substantial book of clients that he or she fails to transfer to others in the firm, the impact on the firm's bottom line can be dire.

The ideal situation is when older partners recognize two significant factors: First, the client's desire is the most important issue and must be acknowledged. Second, in most cases it's vital that the firm keep the client, even after the original partner is no longer the responsible or billing lawyer.

Therefore, as partners begin to wind down their practices, they need to develop a plan for involving younger lawyers in working with clients. In addition, they need to discuss the succession issue with each client. If the client approves-and that is the critical factor-the partner then begins to transfer responsibility to one of the firm's younger lawyers. The older partner may still handle a few matters for particular clients, such as in the case of protracted litigation, but the younger lawyer has now become the responsible lawyer, in both the firm's and the client's eyes.

Transitioning Management ResponsibilitiesEstablishing procedures for transitioning firm and practice management responsibilities is another critical todo for firms. One effective approach for the managing partner's role is to elect or designate a potential successor as "assistant managing partner" or "administrative partner" some months (or even years) in advance of the existing MP stepping down. In this way, the successor gets the benefits of being mentored by the older MP and can gradually assume greater management responsibilities before officially taking the firm's reins.

The same approach can be used to transition practice group leaders, but with one key difference in the selection process. While it's important that the practice group members accept the younger partner as the future group leader, transition at this level typically works best when firm management appoints the successor, versus the person being elected by the members of the group.

Among firms with mandatory retirement policies, some have established an official wind-down period that commences three to five years in advance of a partner's retirement. Under this scheme, partners who hold senior management positions are required to step down at a specific point, so the firm can move younger partners into these positions while the older partners are still available to provide counsel and direction as requested. "As requested" are the key words here. Nothing causes more problems than a senior partner who, having stepped down from a management position, continues to impose his or her views on the successor without being asked.

Client responsibilities can be transferred during this period as well. Some firms, in fact, require the responsible partner to develop a transition plan for each client. These plans are approved and monitored by the managing partner or executive committee-although it's important to note that the speed and sequence in which clients should be transitioned depend on the circumstances relating to each client. And, of course, the partner should discuss these transition plans with the individual clients to ensure they are satisfied with the choice in successor lawyer.

But the most important point of all in succession planning is to begin the process early and start passing the torch while it's still lit, well in advance of the partner's planned retirement date, or before an unexpected event-serious injury, illness or death-suddenly douses the flame and leaves clients reeling.

About the Author

Bob Denney, President of Robert Denney Associates, Inc., provides management and strategic planning counsel to law firms throughout the United States and parts of Canada. He can be reached at (610) 964-1938.